Investment Highlights

• We maintain our BUY call, forecasts and SOP-based FV of RM5.15 (Exhibit 2) for Cahya Mata Sarawak (CMS).

• CMS’s 1HFY17 net profit came in at only 37% and 35% of our and consensus full-year forecasts respectively. However, we consider the results within expectations as 1H is traditionally a low season for its building materials. We expect a stronger 2HFY17 ahead.

• 1HFY17 PBT more than doubled YoY while 2QFY17 PBT jumped 1.5x QoQ, underpinned by stronger performance from: 1. Cement - as lower sales were more than offset by reduced clinker and cement production cost (i.e. coal) as well lower handling cost; 2. Property - driven by billings from Rivervale project and improved residential sales and hypermarket rental from Bandar Samariang; 3. Associates - thanks to narrowed losses from OM Materials (Sarawak) on higher demand and selling prices; and 4. JVs - due to improved better returns generated by CMS Opus and two other private equity funds.

• These were partially offset by weaker performance from the building materials due to lower sales volume and the delays in the execution of the JKR 2017 Malaysian Road Records Information System (MARRIS) project in certain divisions.

• We continue to believe that CMS is well positioned to benefit from both the federal & state initiatives: 1) RECODA to continue develop SCORE growth nodes, 2) SETP to improve public transport via LRT and BRT in Kuching and establish digital economy in the state.

• We like CMS because of: 1) the strong demand for cement and building materials underpinned by various mega infrastructure projects; 2) its steady growth of construction and road maintenance works due to the recent Pan-Borneo Highway project awarded to CMS (JV with Bina Puri Holdings); and 3) sustained demand from its property development both in Kuching and Samalaju, potential land sale of its current undervalued land banks.

Source: AmInvest Research - 28 Aug 2017